All Apple Inc. (NASDAQ:AAPL) needs to do in order to hit a $1 trillion market cap is climb to $200 a share, about 21% higher than where AAPL stock is currently trading; so, it’s not a matter of if, but when.
It’s got earnings due on Nov. 2 after the markets close and while good numbers could push AAPL stock higher — and despite the current rally — I doubt they’re going to be strong enough to do it this week.
In fact, it’s more likely that the AAPL stock price will fall post-earnings given the weak sales of the iPhone 8, which are said to be so tame that the iPhone 7 is outselling it. InvestorPlace tech guru Brad Moon recently reported that a KeyBanc Capital Markets survey of iPhone buyers found that many were purchasing the iPhone 7 because there weren’t enough upgrades to the iPhone 8 to justify its higher price.
Apple’s fourth-quarter 2017 earnings will tell if that’s true.
Forget the iPhone 8
The iPhone 8 was merely something to offer the Apple faithful in September when both phones were launched. However, I suspect Tim Cook and company were more concerned about delivering an iPhone X that would make customers want to throw down more than $1,000 for a phone — the equivalent of a month’s rent for many people living outside the major cities.
How the iPhone X plays out will have a lot to do with how quickly AAPL stock gets to $200. Early pre-orders appear strong.
“We observed shipment times for the iPhone X tick up to 5-6 weeks within minutes of Apple opening pre-orders, where they have held over the weekend,” wrote Nomura analyst Jeffrey Kvaal in a note to clients. “This is ahead of the 2-3 weeks during the iPhone 7 Plus launch and the 2-4 weeks during the iPhone 6 and 6s launch.”
Apple was having a difficult time getting components for the new phone, and as a result, it cut 2017 production of the iPhone X by 50% to 20 million. That means the all-important holiday selling season might not be nearly as lucrative for the company pushing the big payday to the second quarter of fiscal 2018 after more phones have hit the market.
Therefore, Q2 2018 results won’t be out until next May, which means AAPL stock might not test $200 for at least seven or eight months. At least not with the iPhone X acting as the catalyst.
Other Ways for AAPL Stock to Hit $200
Back in February, I wrote that the iPhone was the razor in Apple’s Gillette-like business model and services such as the App Store were the blades. Recurring revenue is what will continue to grow Apple’s top- and bottom-lines. Nothing’s changed about Apple’s business that would lead to me to alter my opinion. Long-term, I still feel that way.
However, a Morgan Stanley (NYSE:MS) analyst recently suggested that Apple will ship 262 million iPhones in 2018, 31 million more than in the record year 2015. Of those 262 million iPhones, 47% will be the iPhone X. The X is $200 more expensive than the iPhone 8 Plus.
The iPhone X, according to Morgan Stanley’s estimates, will generate $123 billion in sales in 2018 based on 123 million units. That $200 difference is an additional $25 billion in annual revenue or 18% more than 2016 iPhone revenue of $137 billion. The average selling price of an iPhone in 2016 was $645. Use that number for the remaining 53% or 139 million iPhones and you get $90 billion in revenue. Add $123 billion and you get total 2018 iPhone revenue of $213 billion or 55% higher than in 2016 and 37% higher than 2015.
So, despite the importance of its services revenue, a successful iPhone X could be the catalyst to start Apple on the way to a $2 trillion market cap.
Unless Apple’s numbers are horrendous, I could see its stock hitting $200 by Thanksgiving. If not, Christmas Eve Day seems like an appropriate time to cross the $1 trillion-threshold.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.